The problem with Japan

After years of travelling the world, I find it interesting how countries differ. For example, having moved to Poland a few years ago, Polish people are not good at being arrogant. They are pretty humble, tbh. This means they are not good at marketing and selling in general. Sure, there are exceptions, but I find it fascinating how the culture is completely the opposite of the UK. In the UK, we are pretty good at selling ourselves, but maybe let customers down with service; in Poland, we are pretty good at service, but let ourselves down in selling. There is a long story there, but the biggest one hit home when I asked a Polish friend if I could help them internationalise and his boss replied that they were happy being Polish (long story there).

So, I find it interesting when comparing nations and cultures, particularly the difference between Asia and America. Asians are similar to the Polish: they deliver great services but are not arrogant. I always remember research back in 2005 of a picture of a tiger with a mountain behind. The research monitored multiple students on a university campus in America and in China. They were shown various pictures, such as this one of a tiger on a mountain.

The American students always looked at the tiger first and then saw the mountain. The Chinese saw the whole picture first and then the tiger (based upon their eye movements).

These are detailed differences.

Take Japan. Japan is a collective that focuses on the benefits to all and not the individual. Decisions are made by committee and not by individuals. Companies are run by the collective and, if they fail, it is the CEO who falls on their sword. This is why, when there are failures, you often see Japanese CEOs crying in public. You don’t see this in America.

Part of the reason for this is that most large Japanese companies formed after the Second World War as keiretsu. As Wikipedia states:

A keiretsu (Japanese: 系列, literally system, series, grouping of enterprises, order of succession) is a set of companies with interlocking business relationships and shareholdings that dominated the Japanese economy in the second half of the 20th century. In the legal sense, it is a type of business group that is in a loosely organized alliance within Japan's business community.

From my own experience it means that Japanese companies are generally run by a small number of people, many of whom are family.

The reason for blogging about this is that Japan has a problem and has had one for years. An aging population is the obvious thing to cite. In Japan, more than one in four people are over 65. That’s over 36 million people (28.7% of the population) which is almost the population of Poland.

But Japan has another bigger problem. After years of stagflation, how to stimulate growth?

The issue is basically that for the last decades, Japan has had deflationary pressures which has caused businesses to avoid asking customers to pay more. How do you get customers to pay more? More importantly, how do you get customers to pay more when you’ve never asked them before?

This is a huge issue as, for most millennials and GenZ Japanese, they’ve lived in a world fo frozen salaries and frozen costs. As Bloomberg puts it most younger Japanese workers have an entire career that “has coincided with a protracted period of stagnation in Japan, the so-called lost decades after an asset bubble burst in the early 1990s. After years of unconventional monetary policy, greater economic activity, as well as a dose of imported inflation, are jolting prices higher. [But Japanese manufacturing] now faces rising costs for raw materials and components. If it doesn’t succeed in charging more, its business could be squeezed into oblivion.”

The real issue in Japan is that, as inflation is returning, asking for more money is counter-culture. Whether in business or as a worker, you just don’t do it. It’s embarrassing. More than that, you can be rebuked and frowned upon if you do.

This is a massive change for people in Japan. The Bank of Japan has not raised interest rates since 2007, but is now having to raise rates to keep up with these inflationary pressures. The knock-on effect is costs are increasing, and so is debt but, when you have not had to ask for more money for almost twenty years, how do you do it? In particular, how do you master the art of negotiation?

I always remember one of the founders of Zopa telling me that Zopa stood for Zone of Possible Agreement. Not a lot of people know that. The Japanese probably don’t know it at all. They’re going to have to learn it now that their stagflationary, deflationary times are over … or so it appears.

 

Postscript: If you like this subject, I can recommend When Cultures Collide: Leading Across Cultures by Richard Lewis